A Project Report on Analysis of Working Capital Management

ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES

PVT. LTD.

CONTENTS

SL.NO TITLE PAGE NO

01

02

03

04

05

06

07

08

09

10

11

12

13

EXICUTIVE SUMMARY

INDUSTRY PROFILE

COMPANY PROFILE

PRODUCT PROFILE

WORK FLOW MODEL

MCKINSEY’S 7S FRAMEWORK

SWOT ANALYSIS

ANALYSIS AND INTERPRETATION

RATIO ANALYSIS

FINDINGS

SUGGESTIONANDRECOMMENDATION

CONCLUSION

BIBLOGRAPH

05-10

11-12

13-15

16-20

21-22

23-48

49-52

53-69

70-79

80

81

82

83

Babasabpatilfreepptmba.com 1


PVT. LTD.

Executive Summary

Introduction:

One of the important areas in the day-to-day management of the affairs

of a firm is the management of Working Capital. Working Capital is used for

financing day-to-day business operations. An organization whether it is

manufacturing or trading, requires adequate funds for acquiring the stock of

materials, marketable securities, stores materials etc., apart from land,

building, machinery furniture etc. The funds invested in current assets such as,

stock of materials work in process, investments, bills receivables, debtors,

bank balance etc., is known as Working Capital. Success or otherwise of any

enterprise depends upon efficient management of working capital and hence,

working capital is often described as “life-blood of business”

In simple terms, all current assets used in daily operations represent

working capital. Current assets are cash or near cash resources. Working

Capital is also known as Circulating or revolving capital, because the current

assets are of nature of circulation. They keep on moving from one form to

another. For example, cash is used for purchasing merchandise which then

takes the form of stock-in-trade or inventories, when the inventories are sold

out cash or debtors are created, when debtors are collected cash is

accumulated and this process continues. Thus, its flow is circular in nature.

In, accounting Working Capital is taken to mean the difference between

current assets and current liabilities.



PVT. LTD.

Objectives of the Study:

1. To know the financial position of the company access.

2. To assess the financial strengths and weakness of the company to give

valuable suggestions to attain operational excellence.

3. To study the importance of Working Capital Management in a

manufacturing concern.

4. To study and evaluate the present Cash Management system of the

company.

Methodology of Data Collection

Research methodology is a systematic way for solving any research problem.

It’s a science of analyzing how research is done scientifically. It studies the

various steps that are generally adopted by a researcher in studying the

research problem.

Sources of Data:

There are 2 types of data:

1. Primary Data

2. Secondary Data



PVT. LTD.

Primary Data

The primary data are those which are collected fresh for the first time

and thus happen to be original in character. The primary data collection

involves the collecting of information for the first time by observation,

experimentation, questionnaire and through interview schedule in the original

form by the researcher himself or his nominees.

Plan of action:

The primary data was collected through discussion with the finance

manager using the interview schedule. This data was obtained to study the

latest procedures relating to working capital management and cash

management system followed by the company.

Secondary Data

The secondary data are those which have been collected by some other

and which have been processed. Generally speaking secondary data are

information, which have been previously collected by some organization to

satisfy its own need. But the department under reference for an entirely

different reason is using it.

There are two main sources for Secondary Data:

Published Data: Data that is already available in books, magazines,

trade journals, newspapers, reports, prepared by research scholar etc.

Unpublished Data: This is not published; it can be found in unpublished

biographies, autobiographies, some governmental aspects and private

individual organizations etc.



PVT. LTD.

The Secondary data used in the study are:

o Annual Report of the company.

o Published financial reports of the company.

o Financial records and stores manual of the company.

o Directors reports, auditors report and other schedules.

Limitations of the Study:

The span of study is confined to only 5 years. The comparison of various

ratios may not have the same conditions, which may result in unrelated

comparisons.

DIPL depends completely on Divgi Warner Pvt. Ltd (Pune) for

procurement of raw materials & supply of finished goods. Hence the

Working Capital Inventory management techniques have to be adjusted

on a timely basis, based on DWPL’s needs.

In this project report the Working Capital Management & Cash

Management system followed during the time of doing the project is

recorded and analyzed.

Need and Importance of Working Capital:

To fulfill its endeavor to maximize the shareholder’s wealth, firm has to

earn sufficient return from its operations, which needs a successful sales

activity. The firm has to invest sufficient funds in current asset to succeed in

sales, as the sales do not convert into cash instantaneously because of time

gap between the sale of goods and actual receipt in cash.

Hence there is a need for Working Capital in the form of current assets to

sustain sales activity during that period.



PVT. LTD.

Findings:

1. View of financial position: The Company was incorporated in the year

2000, its actual commercial work started in the year 2003 April 1st.The

Company had not started any business, so there is no question of profit

from the year 2000 to 2003. But however as a first step towards the

commencement of commercial activity the company has taken over the

business of timing gear blanker on April 2003.

2. In 2003-04 the Company started commercial activity by acquiring the

building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an

annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these

leased assets the company carried out job work for Divgi Warner Pvt.

Ltd. After expenses the company made a modest profit of Rs.3,745/-

before depreciation.

3. The debtors component in the composition of current assets is the

highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63%

in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may

be noted that debtors components in current assets is decreasing over

the years.

4. The cash and bank component for the year 2003-04 was 2.19%.it was

1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-

08. The loans and advances component was 10.04% in the year 2003-

04, 18.91% in 2004-05, 19.26% 2005-06, 27.97% in 2006-07, 30.30% in

2007-08. The debtors component in the composition of current assets

decrease the loans and advance component is on an increase.

5. In the years 2003-04 and 2004-05, the company had a negative working

capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a

favorable position to the company. Then in the year 2005-06, 2006-07



PVT. LTD. and 2007-08 the Net Working Capital has improved drastically to

Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.

Suggestions and Recommendations:

1. The Debtors component is the highest among the five years and it

amounted to nearly 76% of the total current assets. But the percentage

has decreased over the year which is a good sign of improvement. The

second highest element is the loans and advances component which has

increased over the years because of the expansion programmes

undertaken by the company. In the initial years the company had not

maintained a considerable amount of cash and bank balances, but over

the years the company is maintaining adequate cash so as to meet its

immediate cash requirements.

2. The working capital of the company should be always positive. It should

not be negative. In the years 2003-04 and 2004-05, the company had a

negative working capital which is not a favorable position to the

company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s

net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40,

and Rs 35,02,104.84 which is a very positive sign of prosperity and it will

help the company to sustain its expansion programmes. It also shows

that the liquidity position of the company has improved. Hence there is

much capital available with the company to pay off the current liabilities.

3. In order to ensure liquidity and quick cash collection the company can go

for factoring technique, through which the company can get immediate

cash for its accounts receivables and employ it in business and there by

improve its profitability.



PVT. LTD.

INDUSTRY PROFILE

Indian Auto Components Industry :

The Indian auto ancillary industry has come a long way since it had its

small beginnings in the 1940s. If the evolution of the industry is traced in India,

it can be classified into three distinct phases namely: Period prior to the entry

of Maruti Udhyog Ltd, period after the entry of Maruti Udhyog Ltd and Period

post Liberalization. The period prior to the entry of Maruti Udhyog Ltd was

characterized by small number of auto majors like Hindustan Motors, Premier

Automobiles, Telco, Bajaj, Mahindra & Mahindra, low technology and assured

business for most of the auto component manufacturers.

The entry of Maruti in the 1980’s marked the beginning of the second

phase of the industry. The auto ancillary industry in the country really showed

a spurt in growth during this period. This period witnessed the emergence of a

new generation of auto ancillary manufacturers who were required to meet the

stringent quality standard of Maruti’s Korean collaborator Suzuki of Japan. The

good performance of Maruti resulted in an upswing for the domestic auto

ancillary industry. It was during this period that auto components from India

began to be exported.

The entry of foreign automobile manufactures ranging from Mercedes

Benz, Ford and General Motors to Daewoo following the government

liberalizing the foreign investment limits saw the beginning of the third phase

of the evolution of the industry. The auto ancillary industry witnessed huge

capacity expansions and modernization initiatives in the post liberalization

period. Technological collaborations and equity partnerships with world

leaders in auto components became a common affair. However, the global

automobile majors soon realized the folly of their estimations in India. The

market did not seem to be as big as it appeared to be. Hence, sales targets



PVT. LTD. went away. The tough competitive scenario saw a lot of consolidation in the

industry and it still continues unabated.

Global Scenario;

Prior to 2000, it had been almost ten years since TTS (torq transfer

systems) had been awarded any new transfer case business for the European

market (Land Rover). Then concerted efforts were made to re-enter that

market & attain new business with improved technologies such as high output

transfer cases & Torsen Torque Differential technology which broadens the

industries offering in the transfer case market place.

In the global Scenario of transfer case industry there are significant

differences between the American & European Markets. While the American

car-buyer is primarily interested in traction & larger, more powerful vehicles,

the European driver is more interested in vehicle handling, stability & safety.

Therefore for their home markets, European auto makers are producing

smaller, front wheel drive vehicles. But as the American car buyers are more

interested in powerful engines the automakers are offering a wide range of

SUV’s for which the Torq transfer System ( TTS) is particularly well suited

making the 2 wheel drive into 4 wheel drive ( 4 x 4 ). The vehicles tend to be

technically more sophisticated creating new market potential for TTS.

Borg Warner & TTS (Torq Transfer Systems)

The Company engineers work closely with the Drivetrain group in

engineering strategy & provide many opportunities for collaboration & learning

of TTS. TTS engineers frequently make customer presentations along with

colleagues from TS. This collaboration allows the Company to talk about the

company’s all-wheel drive products while TS engineers present other Drive

train technologies that Borg Warner has to offer, including the very successful

Dual Clutch Technology, which is generating much attention in Global

markets.Other Borg Warner business groups have helped to establish a great

reputation for Borg Warner at the Global level. The company’s commitment to



PVT. LTD. new technologies & new products for the automakers will help TTS become a

future Product Leader in Auto industry.

Company Profile

Divgi Industries Private Limited (DIPL) is situated at Banavasi Road,

Sirsi in North Kanara District of Karnataka State. It is a medium scale

engineering industry of prestigious city SIRSI. DIPL was incorporated in the

year 2000.Its actual commercial activities started in April 2003. Its registered

office is in Sirsi (Karnataka). It is certified with ISO/TS 16949 quality system in

2005.

There is another industry in the campus of DIPL known as Divgi Warner

Pvt. Ltd. (DWPL) which is a sister concern. Divgi Warner Private Limited was

established in the year 1995 as a joint venture company between Borg Warner



PVT. LTD. Torq Transfer Systems USA, a global leader in automotive power technology

with history going back over a hundred years & Divgi Metal Wares Limited,

India.

DIPL does the job work for DWPL. Actually buildings and machineries are

taken on Lease basis from Divgi Metal Wares Pvt. Ltd. Raw materials come

from DWPL (Pune) to DWPL (Sirsi). Again these raw materials supplied to

DIPL from DWPL (Sirsi). After the job work is completed & the raw materials

are converted into semi-finished products, it is again supplied to DWPL (Sirsi)

& after some value addition works these products are sent to DWPL (Pune) for

exporting it to Borg Warner (U.S.A.). It has following alliances for the product

range.

Alliance for - 4 WD technology & products.

Manual transmission technology & products.

Synchronizer technology & products

They design & manufacture the auxiliary transfer cases (required for 4x4

vehicles) & components required for automotive torque transfer applications.

The transfer case & the parts fit on the 4x4 vehicles & their products, end

customer base covers-

Tata Motors

Mahindra & Mahindra

The product range of DIPL includes turned Flange families, turned, hobbed,

rolled, ground shafts and gear families used in auto transmission systems. The

usage of their products on vehicle:

Transfer Case

ALH (automatic locking hub)

Companion Flange Families

There are 120 employees working in DIPL. The workers have shift basis work

with specified target. The company provides them with good salary, better

facilities and motivational programs.



PVT. LTD.

Vision:

To be catalytic and innovative organization in the society that supplies

goods and services that are of superior value to those who use them, create

jobs that provide meaning for those who do them and offer our talents &

wealth to help & reward all who invest in us their time money & trust.

Goals:

To become India’s prominent & perfect technology & in crate based

solution provide in automotive transmission & power train application for on &

off highway usage to achieve world class standard in spheres of our business

activities.

Mission:

Our Mission is to assist our customer seek new frontiers of value for the

continuously evolving needs of a globalizing market place in so doing, we

seek to bring unique distinctive & superior value to those who use our

products and services. We seek to provide our customers a continuous source

of innovation by anticipating change & shaping it to our purpose.

Annual turnover of the company –

For the year

2004-2005 90,88,000

2005-2006 1, 22, 60, 000

2006-2007 1, 33, 80,000

2007-2008 1, 70, 54,584



PVT. LTD. 2008-2009 3, 00, 00,000

Board of Directors

SHRI JITENDRA DIVGI.

SHRI HIRENDRA. DIVGI

SHRI BHARATH DIVGI.

Product ProfileDivgi Industry Private Limited manufactures the spare components

required transfer case. The raw materials are procured from Bhosari (Pune)

and component parts are manufactured at DWPL (Sirsi) and they are

assembled at DWPL (Pune).

Transfer Case: transfer case are used in 4*4 vehicles. It includes several

items made up of steel. They include:

Front Adapter: It is an item made up of aluminum.

Shafts:

1. Upper output Shafts.

2. Lower output Shafts.



PVT. LTD.

Upper output shaft lower output shaft

Yokes:

The yokes are classified as single chorden and double chorden that are

supplied to Mahindra & Mahindra and Tata motors. These are also exported to

Borg Warner Torq Transfer Systems.



PVT. LTD.

Gear: These items include:

Ring Gear

Sprocket drive

Sprocket driven

Hub Sleeve

Hub lock up

Collar lockup

Hub reduction

Clutch Gear

Planet penion Gear

Companion Flange:



PVT. LTD.

Quality Objectives:

To continually enhance customer satisfaction by monitoring the

customer satisfaction index.

To improve productivity, achieve higher process capabilities with a

focus to achieve ZERO detect in all out business activities.

To achieve OPTIMUM INVENTORY LEVELS through ON TIME

PROCUREMENT (JIT) of quality material at competitive prices.

To improve the overall inventory effectiveness

To develop a motivated, committed and effective team by providing

the necessary resources, good training programs and a congenial

atmosphere for overall growth of the employees.

.

. Types of Transfer Case:

Mechanical Shift Transfer Case

Electrical Shift TC

Features and Benefits of Mechanical Shift Transfer Case and

Electric Shift Transfer Case:



PVT. LTD. Part-time System: - Allows driver to select two or four wheel operation.

Light Weight Construction: - Reduces total vehicle weight to enhance

fuel use efficiency.

Upper Disconnect to Chain: - Stops unnecessary parasitic losses in

two wheel drive.

Positive Displacement to Oil Pump and Filter: - Assures full liberation

when driving or towing. Reduces maintenance needs.

Helical Gearing: - Delivers quiet, low range operation.

Four-wheel Drive Indicator Light Switch: - Indicates four wheel drive

mode for driver convenience.

Single lever Shift Control: - Simplifies selection of transfer case

operating modes.

Electromagnetic shift on the fly (optional): - Provides smooth

engagement of four wheel drive at highway speeds.

Functions of Transfer Case:

To convert 2 x 2 drive into 4 x 4 drive

To amplify Torque

AREA OF OPERATION

The area of operation of DIPL is done in DIVGI WARNER PRIVATE LTD,

which caters to domestic, and global customer base includes:

Auto Alliance (thailand)

Ford (usa)

Hyudai (japan)

Great wall (china)



PVT. LTD. General motors (usa).

Domestic customers

Mahindra & Mahindra

Tata motors

Telco.

OWNERSHIP PATTERN

DIVGI Industries is a VENDOR company which is owned by share

holders of the same company with a number of shares rupees 49, 53,000

(equity shares rupee 100 each)

COMPETITORS INFORMATION

There are no competitors to DIPL as it does only job work for DWPL as

it does not undertake a trading or marketing activity.

ACHIEVEMENT/AWARD

DIPL is awarded with ISO/TS-16949-Quality certificate in the year

2002.For every 3 year it should be recertified. Recently it is recertified in the

year 2009.

Work Flow Model


CAD

DIPL MDT


PVT. LTD. Order specification DESIGN

Order

DW

Material Material

Design

FEEDBACK

Business Process Approach:

The various business processes, their interaction & sequences are

identified on the basis of nature of our business. Following business

processes are performed in the organization, classified into various functions:-

Top Management: The MD of the company is CEO for the quality

Management System. He is overall overseeing the overall growth of the

company whereas day – to – day operations are looked upon by Plant Head.

Sales & Customer Support: This business process communicates with

customer to identify customer requirements & assures customers in increasing

customer satisfaction by interacting with other business processes in the

company. They give inputs to Engineering about customer needs of new /

modified product / system requirements. This business process also supports

customer for line & warranty related issues. This activity is carried by

Marketing Department.


DWPL PRODNDEPT

WASTE TO SCARP

FINAL INSPECTION


PVT. LTD. Product Design & Development: Engineering department is responsible for

designing the product / part as per the customer requirement. The customer

requirements are translated into the product realization plan through APQP

(Advanced Product Quality Planning) steps. Product leader convinces multi

disciplinary actions consisting of various business processes who act as a

board of decisions for design activity planning. This business process ensures

that company confirms to all the agreed customer requirements.

.

McKinsey’s 7S Framework

The 7S model is better known as McKinsey’s 7-S. This is because two

persons who developed this model, Tom Peters & Robert Waterman, have

been consultants to McKinsey & Co, at that time they published their 7-S

model in their article “Structure in not organization “( 1980 ) & in their book

“The Art of Japanese Management “(1981) “In search of Excellence “ ( 1982).

The model starts on the precise that an organization is not just structure,

but consist of 7 elements: Strategy, Structure, System, Style, Staff, Skill

and Shared values.



PVT. LTD.

Strategy : Actions company plans in response to or anticipation of

changes in its external environment.

Structure : Basis for specialization & coordination influenced primarily by

strategy & by organization size and diversity.

Systems : Formal and informal procedures that support the strategy and

Structure.

Style : The culture of the organization consists of 2 components:-

o Organization Culture: The dominant values and norms which develop

over time & become relatively enduring features of organization

life.Management Style More a matter of what manager do than what

they say; how do a companies managers spend time? What are they

focusing attention on?



PVT. LTD. o Symbolism: The creation and maintenance (or sometimes

deconstruction) of meaning is a fundamental responsibility of mangers.

Staff : The people / human resource management processes use to

develop mangers socialization processes, ways of shaping basic values of

management cadre, ways of introducing young recruits to the Co., ways of

helping to manage the career of employees.

Skills : The distinctive competencies – what the company does best, ways

of expanding or shifting competencies.

Shared values : Guiding concepts, fundamental ideas around which a

business is built – must be simple , usually stated at abstract level, have great

meaning inside the organization even though outsiders may not see to

understand them.

The 7-S model is a valuable tool to initiate change processes & to give

them direction. A helpful application is to determine the current state of each

element and to compare this with the ideal state. Based on this it’s possible to

develop action plan to achieve the intended state.

Application of McKinsey’s 7S:

STRUCTURE

Organizations are economic & social entities in which a number of

persons perform multifarious tasks in order to attain common goals.



PVT. LTD.

L. A. Allen defines an organization as “the process of identifying &

grouping the work to be performed, defining & delegating responsibility &

authority & establishing relationship for the purpose of enabling to people to

work most effectively together in accomplishing objectives”.

Organization structure can be designed on the basis of

departmentalization and relationships.

Departmentalization is the process of dividing work of an organization

into various units or departments.

Relationship is the process of organization brings relationship among

employees at different levels, materials, money & machines.



PVT. LTD.

FUNCTIONAL AREAS AT DIPL

The various business processes, their interaction and sequences are

identified on the nature of business. Following business processes are

performed in the organization, classified into various function:-

1.Production, Planning and Control

2. Stores and Materials

3. Human Resource (HRD)

4. Quality System

5. Maintenance

6. Manufacturing

7. Quality Assurance

8. Finance and Accounts

1. Production, Planning and Control Department

This business process receives customer schedule details from

marketing considering inventories at raw material, work-in-progress and



PVT. LTD. finished goods, they prepare production plan is a base for manufacturing

process. This business process also controls outsourcing of products/

processes. This process strives for 100% on time delivery performance of

company.

Responsibilities and Authorities of Production, Planning and

control:

Prepare dispatch plans / schedules based on scheduled requirements.

To-coporate with Bhosari ( Pune ) for the following:

o Raw materials

o Tooling / insert s

o Mobilizing empty trays for material handling

o Preparing dispatch schedule

Other requirements like consumables To organize inputs to Sirsi plant

such as:

o Trays or guards on machines

o Displaying information at info center

o Providing racks for storing various materials

Organizing dispatch co-ordination with individual engineer for component

for final inspection and further dispatch.

To take the work-in progress statement for production material within the

plant.

To negotiate and finalize rates for scrap (steel/aluminum) and take

approval from VP (operations).

Development of new tools/ inserts and conduct trails for productivity

improvement with reducing the cost per component.



PVT. LTD. Key Performance Indicators (KPI’s) Analysis:

Manufacturing effectiveness:

Work out standard man- hours

Work out available man-hours

On Time delivery

Work out dispatches against planned quantity split into three halves ( 1st

to 10th , 11th to 20th , 21st to 31st .

2. Stores and Materials Department

This business process procures raw material / products / consumables

as per procurement plan based on production requirement schedule.

They also procure indirect parts / products / consumables or services

needed for all other processes. This business process receives and

preserves the raw material till it is consumed during manufacturing.

The two types of items under the stores department are:

a. Billable items

b. Non- billable items

a. Billable items

Billable items are those, which are procured from outside sources.

They include machine spares, gear parts, tool – holders, cutting

tools, grinding mills and consumables.

b. Non- billable items



PVT. LTD. Non- billable items are the items, which are procured Bhosari

(Pune). They include forging (shaft, flange), gear blanks, sun

gear, ring gear, hub reduction, sprocket drive, sprocket driven,

hub sleeve etc.

The Key performance indicator of stores departments is Material Yield

of month.

Receipt of material and preparation of GRR (Goods received cum

inspection report)

Receive the material:

The material from vendors/ suppliers / sub-contractors are received

Check for correctness of received material

Identification of received material

Preparation of goods received cum inspection report.

Storage and handling:

Arranging to store the semi-finished components in the respected

allocated areas.

Arrange to stores the consumables in allocated respective bins in the

racks

Forgings issued to sub contractor for roughing operations are to be

unloaded.

Ion forgings areas allocated in respective containers

Preservation:

Check periodically once in three months i.e., quarterly for deterioration of

materials.

Check for expiry date items etc, and prepare list of expiry date items



PVT. LTD. Dispatch of finish components:

Collect details of components to be dispatched from daily standing

meeting with production, planning and control (PPC) department.

Arrange for transit insurance; collect material return to stores (MRS) from

manufacturing department.

Prepare non returnable delivery challan, while preparing the above

challan check for serial number, P.O. number, quantity, rate, amount and

tempo details in which components are being loaded.

Dispatch of components are made in dedicated trays and transported to

Pune in LCV (Light commercial vehicle).

Arrange for loading in the vehicle such that no space is left between

trays to avoid transit damages.

The material yield of month is calculated as follows:

Total dispatches – Line rejection note + closing stock x 100

Opening balance + receipts

= Percentage of material yield for month

Responsibilities and Authorities of Stores Department:

To ensure packing / packing of finished products, being dispatched to

customers

To maintain stocks of material while working towards minimizing the

inventory levels and maintaining “First in – First out” movements of

materials.

Ensure strict compliance of rules of government authorities, in excise,

octroi procedures.

Maintain accounts of material



PVT. LTD. Ensure return of rejected material time to time and preparation of RGN

(rejected goods note).

Preparation of GRR (Goods received cum inspection report) of receipt

material.

Procedure for Budget :

In order to control the annual budget, the management has budget the

expenses for each department.

The Managing Director approves annual budget and it is responsibility to

manage within the budget by the concerned head of the department.

All head of the departments are empowered to manage their department

budget.

Implementation of annual budget procedure is as under:

Every year in 1st week of January, each department is given headcount

wise annual budget to Accounts Department. HR department budgets,

the expenses under the following heads:

1. Training

2. Housekeeping

3. Vehicle maintenance

4. Vehicle fuel

5. Staff welfare

6. Telecommunication

7. Other expenses.

Finance department puts up all department’s annual budget to managing

director for review and final approval. After approval of Managing

Director, Finance department informs the allocation of budget to each

department head. The Finance department organizes a monthly review

meeting, named as Budget Review Meeting.



PVT. LTD.

3.Human Resource (HRD)

This business process maintains the details of Human Resource.

They help other business to acquire new personnel and improve

competence of employees. This is done by way of effective

training activity as per the needs specified by other business

processes.

Induction Training Programme

At Divgi Warner Private Limited four days induction training programme

is conducted for all new employees. All new employees must undergo an

induction training programme. The purpose of induction training

programme is to ensure that the new employee gets familiar with the

company’s day -to-day operations.

Cleanliness of Premises: HOD (HR) ensures that premises are neat &

clean. Any material available is neatly placed & duly identified. Any

repairs to building & infrastructure required to fulfill product &

manufacturing process needs are timely

carried out. Any material is promptly removed. Every month, any

deterioration in material is brought to notice of CEO for further actions

Employee Training:

I. Basic Job Training

II. General Training

III. Further Training

Basic Job Training :

All employees will be trained in the operation of machinery &

equipment specific to their function. Before using such machines

or equipments, employees are to be informed of the hazards that

are likely to occur.



PVT. LTD. General Training:

All employees will be briefed & receive training in the following:

Accident prevention in the operation of machinery & equipment.

Accident reporting

Good Housekeeping

Company safety, health & environment policy.

Responsibilities under the current safety, health & environment

legislation.

Further Training:

On – site emergency plan

Emergency Skills

Safety, health & environment audit

Performance Appraisal

Once the employee is confirmed he shall be considered for an annual

appraisal every year effective 1st of January.

Appraisal will be based on his overall performance including

attendance; sincerity to meet his pre agreed key performance

areas & objectives.

At the time of appraisal employee is required to give certain KPA’s

(Key performance areas) for next year with specific targets. It is

expected the employee shall monitor his KPA’s. Depending on

performance of KPA’s employee will be considered for annual

increments.

Leave Policy:

In order to control the absenteeism in day – to – day working and avoid

unplanned leave, management has made certain rules and regulations

as under



PVT. LTD.

Entitlement of Leave:

Every employee other than managers and above will be granted, in each

calendar year, the following leave.

o Earned Leave( E.L.) – 15 days

o Casual leaves ( C.L.) – 10 days

o Sick leave ( S.L.) – 5 days

Leave for managers and, above will be as per the terms of appointment

letters issued to individual employees.

Functions of HR Department:

To organize necessary training programs

Assist HOD for human resource acquisition

Maintain all statutory requirements on time, as given out in Gazette

notification and government orders from time to time. This also involves

compliance and renewal of various licenses under Factories Act,

Minimum wages Act, Payment of wages Act, Workmen’s Compensation

Act, Gratuity Act etc.

Maintain records of employees including attendance, leave record and

training record.

To collect training needs through skill matrix from various functions and

prepare training plan.

Upkeep of factory premises.

Arranging and up keeping of company vehicles

Providing and maintaining a conducive atmosphere for work and

enhances performance of employees.Babasabpatilfreepptmba.com 32


PVT. LTD. Plan and arrange sports as a part of employee motivation.

Health and Safety Policy :

It is the policy of Divgi Warner Limited to ensure as is reasonably practicable,

the health, safety and welfare of all its employees, contractors and other

persons who may be affected by its operations. The policy is applied equally,

fairly and without exception.

The company’s policy aims to achieve this by providing

and maintaining places of work and equipment which are safe, by the

operation of system of work, which are free from risks to health and also

provide suitable arrangements for the safety and protection of employees.

SkillS

I - Informed – Training.

L – Learned – Training Evaluation.

U – Understand – Minor supports from others.

O – Operating – Independent.

M – Master – Train to others.

ISO 9001 certified and in May 2002, DIPL got TS (Technical Specification) –

16949 certification. Under Writers Laboratories Inc. has issued TS – 16949

certification to DIPL after assessing the firm’s quality system & finding it in

compliance with ISO / TS 16949 : 2002.

4. Quality System

It consists of four Quality Management Systems:

a) ISO-9001



PVT. LTD. b) ISO-9002

c) ISO-9003

d) ISO-9004

ISO-9001 is given to those companies that will do designing as well as

manufacturing, marketing and service.

ISO-9002 is given to those companies that will do only manufacturing,

marketing and service.

ISO-9003 is given to those companies for servicing, calibration and testing.

ISO-9004 is given only for service. It is vocabulary (guidelines for above

systems).

After 1994 a new system was incorporated QS-9000. It consists of two

sections.

Section I includes basic segments of ISO series and

Section II is customer specific requirements

QS- 9000 is basically formed the big 3’s viz., General Motors, Chrysler,

Ford and other manufactures.

Later in 2000 they formed TS-16949 and the latest updation is of version TS-

16949, 2002 the fundamentals for this system is ISO- 9001, 2000 and ISO-

9004, 2000.

Why go for TS-16949?

TS-16949 is a license for doing business with the customers and

implementation of TS-16949 develops a common understating of quality

related expectations, methods and practices with the customers. The

common understanding and assurance it brings leads to:

Simplifying many different detailed decisions and work methods in

managing and continually improving quality



PVT. LTD. Motivating and empowering people to take action to improve

effectiveness and efficiency of their work processes in disciplined way.

Co-coordinating the actions of different people in an efficient way to give

customers a defect and hassle free experience.

TS-16949 standard belief:

TS-16949 is a quality management system that helps us continually improve

the effectiveness and efficiency of our processes for products and services to

our customers by emphasizing.

Defect prevention

Reduction in variation and waste in our supply chain.

Functions of Quality System:

To co-ordinate the (APQP) advanced production quality planning

meeting.

To maintain the distribution control of quality system documents

Execute IQA’s ( Internal quality audits) as per plan

Maintain IQA ( Internal Quality audit ) reports and analyze the findings

and monitor the target dates of action

Arrange for plant level operation review meeting

Maintain relevant quality system records.

5. Maintenance Department

The Maintenance Department is concerned with the Maintenance

of machines utilities like air compressor, diesel generator set, and IT

equipments like computer fax machines, scanner and printers.



PVT. LTD.

There are three type of Maintenance :

a. Breakdown Maintenance

b. Preventive Maintenance

c. Predictive Maintenance

a) . Breakdown Maintenance:

In the case of breakdown maintenance the machines are attended only

when the process has stopped or after the breakdown.

b). Preventive Maintenance

In the case of preventive maintenance machines are maintained in such

a way to prevent occurrence by regular inspection, cleaning, greasing etc, as

the case may be.

c). Predictive Maintenance

Predictive Maintenance is where the life of each spare part is

determined and at the end of the period spare part is replaced with new one

whether it is damaged or not.

Maintenance schedule are prepared on monthly, quarterly, semi-

quarterly and yearly basis.

Functions of Maintenance Department:

To identify key process equipments

To rectify day- to –day breakdown of the equipments

To plan and procure the spare parts equipments Maintenance

To maintain and update all records related to breakdown/ calibration/

installation and commissioning / retrofitting/ spare parts etc.



PVT. LTD. Provide adequate support to organization by keeping the equipments

under proper working condition, to support qualitative and cost effective

manufacturing of products.

Design and implement an effective preventive and predictive

maintenance system so as to keep high uptime for equipment

Recondition old equipments to effectively maintain machine capability

and retrofit the new technology to enable more effective capital

deployment for minimizing unscheduled downtime and maintain machine

capability.

6. Manufacturing Department

This business process manufactures product as per production orders

released by planning. They follow the entire standard, i.e. quality and process

to realize the products. They assist manufacturing engineering to establish the

new manufacturing process. They develop various job/ work instructions to

guide operations to perform better and better. They plan and accomplish

manufacturing of products so that customer requirements are fulfilled. This

business process ensures maintenance of manufacturing fixtures and tooling

required for product realization.

Monitoring and Measurement of Manufacturing processes:

1. During initial process approvals, the new processes are studied with the

help of PFMEA (Process Failure Mode Effective Analysis) to establish

process controls to achieve process capability. The results o such

process studies are documented in PFMEA ( Process Failure Mode

Effective Analysis) and developed to further documents like process

plans, maintenance check sheet’s tooling manual. These documents

also contain acceptance criteria of relevant process parameters.



PVT. LTD. 2. We achieve and maintain manufacturing process performance

capabilities, functional heads of manufacturing and quality assurance

ensure that PFD (Process Flow Diagram), CP (control Plan), process

plan when acceptance criteria is not met with.

3. Significant process events such as tool change, machine repair etc. are

recorded in process monitoring charts.

4. 100% inspection of products is done at stages for critical special

characteristics whenever process becomes unstable or process

capability is lower then target. For other characteristics 100% inspection

decision is taken depending upon making on further process in house or

customer end, results are recorded in inspection reports.

Functions of Manufacturing Department:

To identify the tooling resources.

To identify process special characteristics as per (production part

approval process) PPAP and company procedures.

To prepare process maintaining and operator instructions

To Identity manpower requirements

To maintain the process control in manufacturing

Provide smooth flow of production as per schedule, under the overall

guidance of plant in charge.

Execution of development activity by participating in APQP (Advanced

Production Quality Planning) System.

Optimize utilization of manpower and machines as per production plan.

Ensure safety and cleanness of plant and machine.

Plan and procure jigs, fixtures and tooling required for production

function.

Maintaining and updating all records related to process charge.

Co-ordinate with other works functionaries to ensure effective on going

production Babasabpatilfreepptmba.com 38


PVT. LTD. Work towards zero defect production system with the help of

predestinated process.

Adoption of new technology for manufacturing process to improve the

quality and cost effectiveness.

7. Quality Assurance

Quality Assurance is given for finished products. For every machine

Quality audit report is prepared and certain observations are noted down.

Statistical process control is carried out by once in 15 days. It is an important

tool in the machine shop. Different products/ processes are evaluated through

audits and feed back is given to the manufacturing management for further

improvements.

Function of Quality Assurance:

To identify the acceptance criteria of receipt stage ( for attribute

characteristics visual inspection )

To prepare receipt and final product Quality plan.

To maintain all inspection and test records.

To select appropriate IMTE (Instrument Measuring Test Equipment) and

calibrate all IMTE at prescribed interval.

To maintain all calibration records.

To prepare and execute plan.



PVT. LTD. Ensure non- confirming products are not supplied to customers and also

ensure proper identification at all stages of manufacturing.

Verification and control of PPAP (Production Part Approval Process)

reports and samples.

Analyze monthly rejection data on LRN ( Line Rejection Note ) Basis

Ensure calibrated and capable inspection, measuring and test

equipments are available for accurate evaluation of products.

Evaluate different products/ processes through audits and give feedback

to manufacturing/ management for improvements.

Ensure planning for product quality from “Development stage”. APQP

(Advanced Production Quality Planning), with the use of proper gauging

and process control techniques.

8. Finance and Accounts Department:

Finance is essential component of the business. To maintain this

effectively a specialized department is there i.e. Finance Department. This

department is concerned with the day to day financial activities like

consumable purchase, sale, payments, receipts etc. It properly manages the

accounts of concerned year.

Functions:

Cash handling –petty cash handlings

Bank transactions – cash withdrawals, maintaining record of bank

balance, details of check payments.

Preparation of statements for funds requirements of the month including

statutory and supplier payments.

Recording of all the transactions in the books of accounts

Preparation of cash flow statement budget.

.



PVT. LTD.

SKILLS

The skills required for every level in the organization are well defined

through a skill matrix exhaustively. For example in the stores department the

skills identified by Manager are – communication skills, negotiation skills, inter-

personal skills, Managerial skills, computational skills and problem solving

skills.

A team of top management assesses these skills through a competency

matrix & training needs are recommended by the respective section heads in

order to improve the weak areas. For top management, wherever necessary

the company employs outside agencies to assess the skills & competency

levels.

Training is given to the identified employees in all the levels in house,

outside as well as on – job.

STYLE

The organization style of management can be described as to

participative in nature at various levels.

Every day representatives from the all the departments meet together &

discuss the progress of the jobs & any difficulties faced. Decisions to

solve the bottlenecks are taken & time frames are fixed with specific

responsibilities to the person of related department. However the

management gives all the support to sole the problem.

On a weekly basis the progress of the job is reviewed by the section

heads, which is chaired by the head of the plant. Major decisions related

to project status, customer readiness, site condition, status of the

component parts etc. shall be discussed & appropriate decisions are

taken.

Employees are treated in a most friendly way rather than boss –

subordinate way & suggestions are taken from all the level for improving

the process however trivial it may be.



PVT. LTD. Top management always encourages changes for betterment of the

organization. The staff is also given continual training to cope up with the

changing scenario & to keep their skills abreast with the latest

technology & methods.

Apart from regular official work, the employees participate in various

recreational activities during festivals by organizing sports, competitions

etc.

The success of the organization is attributed to each & every person &

not a single key person as DWPL gives importance to the efforts of the

entire staff.

STRATEGY

The company has adopted the strategy of ‘Continual Improvement’.

Continual improvement is a way of life and part of DIPL’s culture. It is

comprehensive & all encompassing system of methods & practices based on

continuous learning to achieve greater effectiveness & efficiency of the

business processes. It is driven by a close understanding of our customers to

give them a defect & hassle free experience, disciplined use of facts, data &

analysis and diligent business processes to reduce variation & waste.

Continual Improvement helps to:

Continually improve the effectiveness and efficiency of the organization’s

processes for its products and services

Enhance Customer Satisfaction by emphasizing the fundamental

principle of :

- Defect Prevention

- Reduction of variation and waste in Supply chain.Babasabpatilfreepptmba.com 42


PVT. LTD.

SYSTEM

System followed by DIPL to Improve the Work Place - JAPANESE 5S

5S is a system of steps and procedures that can be used by individuals

and teams to arrange work areas in the manner to optimize performance,

comfort, safety and cleanliness.

'5S' driven workplace enhances productivity and competitiveness and

fosters a productivity culture through a continual process of identifying,

reducing and eliminating Waste.'5S' helps:

Identify, Reduce and Eliminate Waste

Organized & World Class Workplace Enhancement in Productivity &

Competitiveness

Better Living and improved work life

“5S'' is a tool with Japanese roots, focused on fostering and sustaining

high quality house keeping, Safety (preventing accidents).

Quality (preventing errors) and equipment maintenance (reduction in

breakdowns).

Safety (preventing accidents),

Inculcates in the employees a mentality for continuous improvement.

“A place for every thing and every thing in its place.”

JAPAN TRANSLATION ENGLISH WORD

Seivi Organization Sorting



PVT. LTD.

Seiton Neatness Simplifying Access

Seiso Cleaning Sweeping

Seiketsu Standardization Standardization

Shitsuke Discipline Self Discipline

Seiri : Sorting out - "When in doubt, throw it out"

Seiton : Systematic Arrangement Straighten - Everything has a place,

everything in its place

Seiso : Spic and Span Scrub - Clean it up

Seiketsu : Standardizing- Stabilize - Standardized cleaning and

housekeeping

Shitsuke : Self-discipline -Sustain - Make it a way of life .

''5S'' is the beginning of a productive life for everyone in DWPL and is

fundamental to productivity improvement. A clean, organized and systematic

workplace directly impacts Waste and thus impacts Productivity, Quality,

Costs and other factors.’5S’is a time tested and proven approach (infact a

stepping stone) to achieving World-Class status.

STAFF



PVT. LTD. The staff of DIPL – Top, middle and lower management have nurtured

following qualification thereby being able to meet the expectations of their

valuable customers.

Quality: DIPL staff maintains professional attitude among all employees.

Line & Staff Relationship :

Line refers to those positions of an organization, which have

responsibility, authority and is accountable for accomplishment of primary

objectives. The relationship existing between two managers due to

delegations of authority and responsibility and giving or receiving instructions

or orders is called line relationship. Line authority represents uninterrupted

series of authority and responsibility delegating down the management

hierarchy.

DIPL has adopted Line & Staff organizational structure that offers

individual the opportunity to meaningfully learn & participate across diverse

business processes.

The Managing Director of this company is CEO for the Quality

Management System. He is overall in-charge overseeing the overall growth of

the company, whereas plant heads look after day -to -day activities.

The business process heads, as shown in overall organization chart, are

treated as top management to establish, implement, maintain & continually

improve effectiveness of Quality management to establish, implement,

maintain & continually improve effectiveness of Quality Management System.

The Deputy General Manager follows the Managing Director. The team

leaders of various departments report to the Deputy General Manager.



PVT. LTD.

SHARED VALUES

Organization Purpose:

To pursue excellence in all spheres of our business activity

through a process of continual improvement

To produce detect – and hassle free quality products &

services to meet or exceed customer expectations.

To attain leadership in the market.

Commitment to high standards of motivation & competency

that is essential to the persuit of excellence.

The company is achieving its objectives through Key Performance

Indicators (KPI’s). Top management has defined measurable KPI’s for each

business process which are also Quality objectives for the company. Each

business process owner utilizes Multi-disciplinary action approach to measure

and analyze the data & information to arrive at a action plan which is

implemented & reviewed every month. This monthly review also serves as one

activity to improve & maintain internal communication. These KPI’s are for

overall functioning of business processes.

Quality objectives are deployed within the organization through KPI’s. While

defining KPI’s company ensures that all KPI’s are:

S - Specific

M - Measurable

A - Achievable

R - Realistic

T - Time Bound



PVT. LTD. The status of KPI’s is shared within the team for sustaining or improving

the performance. The status of KPI with the action plan is shared with the

management in various forums, which range from weekly to quarterly forums.

SWOT Analysis

Strengths of DIPL:

The quality management system is in Corporate Culture:

DIPL are committed to customer satisfaction at all levels in the

organization. DIPL has Quality Assurance and QMS departments where in all

the queries, difficulties or any type of assistance required by customer is taken

care. The issues relating to customer complaints, resolutions, corrective

actions etc., suggestions by customers for improvement in processes /

products are discussed on weekly basis and actions are initiated to resolve the

problems.

DIPL provides total transparency in dealing with its customers and are

committed to enhance their capabilities, by providing them with latest

technological advantage and utilizing maximum capacity to meet their

requirements.

They process the knowledge and the technology that is relevant to the

products being designed, manufactured and supplied.

Company has On-line communication system, capable to be linked with

customer’s On-line system.

line with QS-TS-16949 certification, which can achieve a good

market for its product at global level.

The company has adopted Continual Improvement philosophy,

which helps to achieve greater effectiveness & efficiency in all

the business processes.



PVT. LTD. Customer complaints are systematically handled through team

– oriented problem solving 8 – D methodology for internal as

well as external concerns.

There is well- designed automation & workstation near every

machine, which are operator friendly.

There is teamwork among the employees in the company.

Each process (activity) is measured for effectiveness &

efficiency to meet quality objectives. Competency to adopt new

system, implementation, practice & sustenance.

Most of the workforce comprises of well informed, competent

youngsters qualified with diploma or graduation in engineering.

Global Scenario:

Divgi is one among the world – class competitors at global level.

DIPL works with world’s best logistics agencies to bring unbeatable value

& supply chain management capabilities from India to right at your door

step across the globe.

Packaging developed to minimize dunnage at assembly plants while

protecting materials in transit to any part of world.

\

Weakness of DIPL:

1. DIPL is situated in a remote place or area, which is far away from

metropolitan cities, and it is not connected with national or state

highways.

2. The lack of connectivity with proper roads & highways leads to the

problem of procuring inputs & delivery of outputs.



PVT. LTD. 3. There is transportation problem because Sirsi is a hilly region above sea

level so there is no facility of railways, which is the faster means of

transportation than roadways.

4. The company hires employees on contract basis, which makes rigorous

training essential.

Opportunities at DIPL:

1. There is a scope for making final products instead of component parts

and make it available for profit & loss.

2. There is an opportunity for making future expansion in business by

going for joint ventures & tie-ups with other company’s also.

3. The company provides various employment opportunities to new

graduates & local people of Sirsi.

4. By adopting QMS – ISO 14001, the next aim of the company is to

“Deming Award” of certified by Japanese, which is given for quality

management systems.

5. The vast area of land & space of building can be effectively used for

future expansions.

Threats of DIPL:

DIPL, Sirsi mainly depends on the parent company i.e. DWPL,Sirsi and

Pune. The parent may change its base of manufacturing for marketing its

products outside India.



PVT. LTD. The major raw material used in the production is steel, presently there is

a huge demand for steel & there is rise in the price of steel for last few years in

India & all over the world. The rise in the input cost will reduce the margin of

the company.

There is always a risk of change in Government Policies.

Title of the Study: “A Study on Working Capital Management

with reference to Divgi Industries Private Ltd. SIRSI.”

Working Capital Management

Definition:

Working Capital Management is defined as, “a process of determining

quantum of current of assets to be held at a right time, so as to discharge



PVT. LTD. current liabilities and thereby utilizing them to their maximum extent, and at the

same time increasing over all value of the firm keeping the liquidity position

intact.

Working capital management is the functional area of finance. It

involves the formulation of policies for managing the current assets and

current liabilities so as to maximize the benefits arising there from.

Management of working capital involves deciding upon the amount and

composition of current assets and tapping proper sources of finance for

acquiring current assets. Hence proper management of working capital

ensures adequate investments in current assets avoiding the possible losses

arising out of deficit or excess funds.

Objectives of the Study:

1. To know the financial position of the company access.

2. To assess the financial strengths and weakness of the company to give

valuable suggestions to attain operational excellence.

3. To study the importance of Working Capital Management in a

manufacturing concern.

4. To study and evaluate the present Cash Management system of the

company.

5. To suggest strategies to improve the liquidity position of the company.

Methodology of Data Collection

Research methodology is a systematic way for solving any research problem.

It’s a science of analyzing how research is done scientifically. It studies the

various steps that are generally adopted by a researcher in studying the

research problem.

Sources of Data:



PVT. LTD. There are 2 types of data:

1. Primary Data

2. Secondary Data

Primary Data

The primary data are those which are collected fresh for the first time

and thus happen to be original in character. The primary data collection

involves the collecting of information for the first time by observation,

experimentation, questionnaire and through interview schedule in the original

form by the researcher himself or his nominees.

Plan of action:

The primary data was collected through discussion with the finance

manager using the interview schedule. This data was obtained to study the

latest procedures relating to working capital management and cash

management system followed by the company.

Secondary Data

The secondary data are those which have been collected by some other

and which have been processed. Generally speaking secondary data are

information, which have been previously collected by some organization to

satisfy its own need. But the department under reference for an entirely

different reason is using it.

There are two main sources for Secondary Data:

Published Data: Data that is already available in books, magazines,

trade journals, newspapers, reports, prepared by research scholar etc.

Unpublished Data: This is not published; it can be found in unpublished

biographies, autobiographies, some governmental aspects and private

individual organizations etc.

The Secondary data used in the study are:



PVT. LTD. 1. Annual Report of the company.

2. Published financial reports of the company.

3. Financial records and stores manual of the company.

4. Directors reports, auditors report and other schedules.

Statement of the Problem:

Financial statements can provide valuable insights into a firm’s

performance. Analysis of financial statements is useful for the company to

evaluate its own performance and also it is of interest to lenders (short term as

well as long term), investors, security analysts, managers and others. To

evaluate the effectiveness of operations and to determine its success an

analyst has to combine quantitative results with qualitative factors. For

instance a company’s current profitability may be low. However, because of

actions initiated by the management like technology up gradation, joint venture

and collaboration with a foreign partner, etc. The prospects for better

performance of the company in future may be bright.





gap between the sale of goods and actual receipt in cash. Hence there is a

need for Working Capital in the form of current assets to sustain sales activity

during that period.

Limitations of the Study:

The span of study is confined to only 5 years. The comparison



PVT. LTD. of various ratios may not have the same conditions, which may result in

unrelated comparisons.

DIPL depends completely on Divgi Warner Pvt. Ltd (Pune) for

procurement of raw materials & supply of finished goods. Hence the

Working Capital Inventory management techniques have to be adjusted

on a timely basis, based on DWPL’s needs.

In this project report the Working Capital Management & Cash

Management system followed during the time of doing the project is

recorded and analyzed.

Need and Importance of Working Capital:





gap between the sale of goods and actual receipt in cash.

Hence there is a need for Working Capital in the form of current assets to

sustain sales activity during that period.

The need for Working Capital arises for following reasons:

To purchase raw-materials, spare parts and other components

To pay wages and salaries and other charges

To meet over-head expenses



PVT. LTD. To pay selling and distribution expenses

To grant credit facility to customers

To hold adequate stock of raw-materials finished goods, spare parts,

etc.

To provide for Contingencies.

Principles of Working Capital:

Principle of Risk Assumption

Principle of Net Worth Position

Principle of Maturity of Payment

Principle of Cost of Capital

Classification of Working Capital:

1. Gross Working Capital

2. Net Working Capital

3. Permanent Working Capital

4. Temporary or Fluctuating Working Capital

5. Negative Working Capital



PVT. LTD.

1. Gross Working Capital: The gross working capital consists of total current

assets. It provides the correct amount of working capital required at the right

time. In financial management, the major thrust is upon the management of

current assets. It tries to maximize return on investment by avoiding two

extremes. Excessive investment in current assets simply reduces the

profitability of an enterprise, since, the investment becomes idle. Whereas,

inadequate working capital effects the solvency of the company negatively.

2. Net Working Capital: Net working capital is defined as the difference

between current assets and current liabilities. A company has to give more

importance to liquidity, because inability to pay short-term creditors may prove

to be dangerous

to the organization. Current assets should be sufficiently above the current

liabilities low liquidity is harmful to the solvency of the company.

3. Permanent Working Capital: It refers to the current assets that are

required to be maintained continuously throughout the year to carry on the

business operations. In other words, it represents that part of the working

capital which remains permanent in the business, in one form or the other in

the same way as the fixed assets. For e.g. Cash or bank balance, stock-in-

trade to be maintained as minimum to carry on business operations at any

time.



PVT. LTD. 4. Temporary or Fluctuating Working Capital: It refers to the additional

current assets required to meet the changing demands of an industrial or

business enterprise caused by seasonal change. During peak season, a

company requires additional funds to hold extra stock of goods. Thus,

fluctuating working capital is not permanently locked up unlike the fixed

working capital. It varies according to the changes in the volume of business

caused by seasonal changes or any other factors.

5. Negative Working Capital: It refers to the deficit working capital. When the

current liabilities exceed the current assets it is known as negative working

capital. Under this situation a firm actually suffers from the shortage of funds

and is a sign of unhealthy developments in business. It results in damage to

the reputation of a concern.

Current Assets

Current assets are those assets, which in the normal course of business,

convertible into cash within a short period of time i.e. an accounting year (or

operating cycle)

Components of Current Assets:

Stock of materials in trade and in transit

Stores and spare parts

Bills of exchange

Loans and advances

Deposits

Cash and Bank bal

Investment in Govt. and other securities

Amount due from subsidiary Companies etc.

Prepaid expenses

Outstanding Incomes.

Current Liabilities



PVT. LTD. Current Liabilities include all the obligations of the concern that are

maturing within an accounting year.

Components of Current Liabilities:

Sundry Creditors.

Loans from bank & others

Provision for taxation, dividend etc.

Liabilities towards gratuity etc

Outstanding expenses

Incomes received in advance.

Operating Cycle of Working Capital

Operating cycle refers to the length of time involved between the sales &

their actual realization in cash.

In other words, it is the cycle time required in conversion of:

a. Cash to raw materials

b. Raw materials to work in process

c. Work in process to finished goods

d. Finished goods to Accounts Receivables(A / R)

e. A / R to Cash

The operating cycle of DIPL is as follows:

Purchase of resources such as Raw Material, labour, power and fuel etc.

with cash.

Conversion of Raw Material into Work-in-Process into finished goods.

Sale of finished product either for cash or on credit. Credit sale create

book debts for collection.

Conversion of book debt (Accounts Receivables) into cash.



PVT. LTD. The operating cycle of DIPL may be diagrammatically shown as:

Accounts Work in

Receivables Process

The above phases affect the cash flows. The cash inflows and cash

outflows are neither synchronized nor certain. The firm needs to maintain

liquidity to purchase raw material and pay expenses such as wages. Salaries

other manufacturing and administration & selling expenses and taxes, as the

cash outflows are certain. It surplus cash is available at any time in an

intermediary state should be invested in short term securities without keeping

it idle. Longer the duration of the operating cycle greater is the extent of

working capital requirements.

Generally, the operating cycle is lengthier in case of manufacturing

industries.

Operating Cycle with reference to DIPL may be calculated as follows:

Operating Cycle = Inventory Period + A / R Period – Accounts Payable Period.

= 2 Days + 60 Days – 60 Days

= 2 Days.

Financial Sources for Working Capital


CASH RAW MATERIAL

FINISHEDGOODS


PVT. LTD. The firm can finance its Working Capital needs from different sources of

funds using different approaches. The sources of funds are categorized as:-

Long term financial sources

Short term financial sources

Spontaneous sources.

Long Term Financial Sources: Long term financial sources are sources

through which funds are raised for a longer period of time i.e. more than 1

year. It is used mainly to finance permanent assets. Following are the long

term financial sources:

Equity Shares

Preference Shares

Debentures

Retained Earnings

Loans and advances from banks and specialized financial

institutions.

Public Deposits

Short Term Financial Sources: Short term financial sources provide financial

assistance for a shorter period of less that one year. The firm must arrange

these sources in advance to meet day-to-day operational expenses. Following

are the short term financial sources:

Trade Credit

Customer’s Advance

Installment Credit

Discounting of bills

Bank Finance

Factoring



PVT. LTD. Spontaneous Sources: Spontaneous sources refer to the automatic or

instant funds which arise in the regular courses of business operation. The

major sources of such financing are trade credit & outstanding expenses.

Analysis of Gross Working Capital

Concept: Gross working capital refers to the total current assets which include

debtors, cash and bank balances and loans and advances.

2003-04 2004-05 2005-06 2006-07 2007-08

Debtors 20,35,974 15,17,190 23,88,962 24,83,950 33,12,312

Cash and

Bank

balances

50,913 32,588 2,30,605 40,694 12,913

Loans

and

Advances

2,32,801 3,61,417 6,24,889 9,80,256 14,45,510

Total 23,19,688 19,11,195 32,44,456 35,04.900 47,70,735

Table 1: Composition of Gross Working Capital

Interpretation: The debtors balance has increased over the years which

shows that lot of funds have been blocked up in the debtors and where the

company needs to improve its credit policy.

The cash and bank balances has increased considerably in the year

2005-06 which shows that the company is trying to maintain a good liquidity

position.

The gross working capital is increasing over the years mainly because of

increase in the debtors and loans and advances. But in the year 2005-06 less

than 75% of the gross working capital is made up by debtors which is a sign of

improvement compared to the previous years.



PVT. LTD.

NET WORKING CAPITAL

Concept: Net working capital is the difference between current assets and

current liabilities.

Year Current

Assets

Current

Liabilities

Networking

Capital

2003-04 23,19,688.84 24,54,857.93 (1,35,169.09)

2004-05 19,11,194.6 21,06,271.35 (1,95,076.75)

2005-06 32,44,456.39 22,66,085.75 9,78,370.64

2006-07 35,04,899.10 25,18,040.70 9,86,858.40

2007-08 47,70,735.74 12,68,630.90 35,02,104.84

Table 2: Net Working Capital

Interpretation:

In the years 2003-04 and 2004-05, DIPL had a negative working capital

which is not a favorable position to the company. But in the year 2005-06,

2006-07 and 2007-08 the net working capital has improved drastically

compared to previous years, which shows that the liquidity position of the

company has improved. Hence there is much capital available with the

company to pay off the current liabilities.



PVT. LTD.

Statement of Changes in Working Capital for year 2003-04

Particulars 31.3.04 31.3.03 Increase DecreaseCurrent AssetsDebtorsDivgi Warner Pvt. Ltd.

20,35,974.00 20,35,974.00

Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Co-op, Bank

40,022.878,980.001,910.17

4,686.0085.00

-

35,336.878,895.001,910.17

Loans and AdvancesAdvance Modi Xerox CentreDivgi Metal Ware Pvt., Ltd. PuneAdvanced Partnership in which directors are interested.

Other AdvancesElectricity DepositAdvanced to Staff & WorkersT.D.S.

5,340.0026,093.00

66,890.0042,486.0091,992.00

76,619.00

48,170.00

5,340.0026,093.00

18,720.0042,486.0091,992.00

Total 23,19,688.84 2,41,654.00 20,78,034.80

Current LiabilitiesCreditors for suppliers & servicesCreditors for outstanding expenses

21,40,125.93

3,14,732.00

1,55,912.00

11,261.00

19,84,213.93

3,03,471.00



PVT. LTD. Total 24,54,857.93 1,67,173.00 22,87,684.93

Net Working Capital(Current Asset – Current Liability)

(1,35,169.09) 74,481.00 (2,09,650.09)

Table 3: Statement of changes in Working Capital for the year 2003-04



15,17,190.00 20,35,974.00 5,13,784.00

Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Co-op, Bank

21,384.709,980.001,223.27

40,022.878,980.001,910.17

1,000.0018,638.17

686.9

Loans and AdvancesAdvance Modi Xerox CentreDivgi Metal Ware Pvt., Ltd. Pune

Other AdvancesElectricity DepositAdvanced to Staff & WorkersU.L. India Pvt. Ltd., BangaloreGagni International, HubliT.D.S.

7,829.63

66,890.0056,047.0084,375.00

2,950.001,43,325.00

5,340.0026,093.00

66,890.0042,486.00

--

91,992.00

13,561.0084,375.00

2,950.0051,333.00

5,340.0018,263.37

Total 19,11,194.60 23,19,688.84 4,08,494.92

Current Liabilities 18,37,154.35 21,40,125.93 3,02,971.00



PVT. LTD. Creditors for suppliers & servicesCreditors for outstanding expenses

2,69,117.00 3,14,732.00 45,615.00

Total 21,06,271.35 24,54,857.93 3,48,586.60

Networking Capital(Current Asset – Current Liability)

(1,95,076.75) (1,35,169.09) 59,907.66




23,88,962.60 15,17,190.00 8,71,772.60

Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Co-op, BankVijaya Bank

8,594.89980.00

1,96,272.8724,757.00

21,384.709,980.001,223.27

- 1,95,049.6

24,757.00

12,789.819,000.00

Loans and AdvancesDWPL, PuneDWPL, Sirsi

Other AdvancesElectricity DepositAdvanced to Staff & WorkersU.L. India Pvt. Ltd., BangaloreGagni

7,829.632,62,003.4

-23,618.00

--

68,775.002,62,663.00

7,829.63

66,890.0056,047.0084,375.00

2,950.00-

1,43,325.00

2,62,003.4

68,775.001,19,338.00

66,890.0032,429.0084,375.00

2,950.00



PVT. LTD. International, HubliPrashant Tools Pvt. Ltd.T.D.S.

Total 32,44,456.39 19,11,194.60 13,33,261.79


18,90,298.75

3,75,787.00

18,37,154.35

2,69,117.00

53,144.40

1,06,670.00

Total 22,66,085.75 21,06,271.35 1,59,814.4


9,78,370.64 (1,95,076.75) 11,73,447.39




24,83,949.50 23,88,962.60 94,986.90

Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Co-op, BankVijaya Bank kansurVijaya Bank sirsi

12,489.591,680.00

999.9824,646.00

878.00

8,594.89980.00

1,96,272.87 24,757.00 ---

3894.70700.00

878.00

1,95,272.89111.00



PVT. LTD. Loans and AdvancesDWPL, PuneDWPL, Sirsi

Other AdvancesAdvanced to Staff & WorkersPrashant Tools Pvt. Ltd.

T.D.S.

7,829.635,73,656.40

17,732.00

1,25,000.00 2,56,038.00

7,829.632,62,003.40

23,618.00

68,775.00

2,62,663.00-

3,1,653.00

56,225.00

5,886.00

6,625.00

Total 35,04,899.10 32,44,456.39 2,60,442.71


21,08,000.45

4,10,040.25

18,90,298.75

3,75,787.00

2,17,701.70

34,253.25

Total 25,18,040.70 22,66,085.75 2,51,954.95


9,86,858.40 9,78,370.64 8,487.76



Particulars 31.3.08 31.3.07 Increase DecreaseCurrent AssetsDebtorsRediant Securities Service ,Pune

Divgi Warner

2,872.00

33,09,440.50

-----

24,83,949.50

2,872.00



PVT. LTD. Pvt. Ltd. Sirsi 8,25,491.00Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Souharda Co-op Bank Vijaya Bank KansurVijaya Bank Sirsi

3,787.23

1,680.00

4,178.982,389.00

878.00

12,489.59

1680.00

999.98 24.646.00 878.00

3,179.00

8,702.36

22,257.00

Loans and AdvancesDWPL, PuneDWPL, Sirsi

Other AdvancesAdvanced to Staff & WorkersTrue Consultants Belgaum .T.D.S

61,329.639,22,031.40

11,500.00

1,25,000.00 3,25,649.00

7,829.635,73,656.40

17,732.00

1,25,000.00 2,56,038.00

53,500.003.48,375.00

69,611.00

6,232.00

Total 47,70,735.74 35,04,899.10 12,65,836.64

Current LiabilitiesCreditors for suppliers & services Creditors for outstanding exps

7,25,630.65

5,43,000.25

21,08,000.45

4,10,040.25

4,52,690.20

1,32,960.00

Total 12,68,630.90 25,18,040.70 5,85,650.20


35,02,104.84 9,86,858.40 25,15,246.44




PVT. LTD.

Interpretation:

The working capital of the company should be always positive. It should

not be negative. In the years 2003-04 and 2004-05, DIPL had a negative

working capital which is not a favorable position to the company.

It clearly shows that DIPL was a newly established company. So it was

facing shortage of working capital in initial years, so it had to increase its

working capital to stand in the business world.

Then again in the year 2005-06, 2006-07 and 2007-08 DIPL’s net

working capital has increased to Rs.9,78,370.64, Rs9,86,858.40 and

Rs35,02,104.84 which is a very positive sign of prosperity and it will help DIPL

to sustain its expansion programmes.

Ratio Analysis

Ratio analysis is a widely accepted tool of financial analysis. It is

defined as a systematic use of ratio to interpret the financial statements so that

the strengths and weakness of the firm as well historical performance and

current financial conditions can be determined. The term ratio refers to the

numerical or quantitative relationship between two items or variables.

Current Ratio

Concept: Current ratio is a measure of firm’s short term solvency i.e. its

ability to meet short term obligations. This ratio is also known as Working

Capital ratio. The current ratio is the ratio of total current assets to total current

liabilities.



PVT. LTD. Current Assets

Current Ratio =

Current Liabilities

Year Current Assets Current

Liabilities

Ratio

2003-04 23,19,688.84 24,54,857.93 0.95 : 1

2004-05 19,11,194.6 21,06,271.35 0.91 : 1

2005-06 32,44,456.39 22,66,085.75 1.43 : 1

2006-07 35,04,899.10 25,18,040.70 1.39: 1

2007-08 47,70,735.74 12,68,630.90 3.76: 1

Table 8: Current Ratio

Interpretation:

The Current Ratio was 0.95 for 2003-04 and decreased to 0.91 in the

year 2004-05 and for 2005-06 the ratio increased to 1.43.and then decreased

to1.39 in the year 2006-07 and for 2007-08 the ratio increased to 3.76.

The current ratio has met the standard of 2:1 ratio and hence it can be

said that there is enough working capital to meet the current liabilities. Hence

it can be noted that steps have been taken to increase the current ratio in the

previous financial years .so that enough working capital is available to meet

the current obligation. Thus the liquidity position, as calculated by the current

ratio, is improved in the financial year 2007-08.

Absolute Liquidity Ratio

Concept: Absolute liquidity ratio is a ratio of cash in hand and at bank to

Current Liabilities. The standard ratio is 0.5: 1.

Cash in hand + Cash at bank

Absolute Liquidity Ratio =



PVT. LTD. Current Liabilities

Year Cash Current

Liabilities

Ratio

2003-04 50,913.04 24,54,857.93 0.021 : 1

2004-05 32,587.97 21,06,271.35 0.015 : 1

2005-06 2,30,604.76 22,66,085.75 0.102 : 1

2006-07 40,693.57 25,18,040.70 0.016: 1

2007-08 12,913.21 12,68,630.90 0.010: 1

Table 9: Absolute Liquidity Ratio

Interpretation:

The absolute liquidity ratio was 0.021 for 2003-04 and decreased to

0.015 in the year 2004-05 and for the year 2005-06 the ratio increased to

0.102 and then in 2006-07 and 2007-08 the ratio decreased to 0.016 and

0.010 respectively.

The absolute liquidity ratio is below the standard of 0.5:1. It shows that

the liquidity position of the concern is not good. Hence adequate cash balance

need to be maintained by the company.

Working Capital Turnover Ratio

Concept: This ratio indicates how efficiently the working capital of the firm is

being utilized.

Sales / Income

Working Capital Turnover Ratio =

Net working Capital

Year Sales Net Working Ratio



PVT. LTD. Capital

2003-04 58,31,018.2 (1,35,169.09) (43.14)times

2004-05 90,88,657.33 (1,95,076.75) (46.59)times

2005-06 1,22,61,058.8 9,78,370.64 12.5 times

2006-07 1,33,77,943.25 9,86,858.40 13.5 times

2007-08 1,71,49,248.50 35,02,104.84 4.89 times

Table 10: Working Capital Turnover Ratio

Interpretation:

The working capital turnover ratio was negative for the years 2003-04

and 2004-05. in the year 2005-06 and 2006-07 it has increased to 12.5 times

and 13.5 times respectively. But in the year 2007-08 it has considerably

decreased to 4.89 times.

Working capital turnover is the ability to generate sales per rupee of

working capital. It should always be positive but in the initial years the ratio

was negative which is not a favorable position to the company. For year

2005-06, 2006-07 the ratio has improved to12.5 times and 13-5 times But in

the year 2007-08 it has decreased to 4.89 times which shows that the

organization is not able to utilize its working capital full.

Debtors Turnover Ratio

Concept: Debtors are expected to be converted into cash over a short

period of time and therefore are included in current assets. It shows how many

times debtors are converted into cash in a year.

Net Credit Sales

Debtors Turnover Ratio =



PVT. LTD. Average Debtors

Where, Average Debtors= opening Debtors + closing Debtors

_____________________________

2

Year Credit Sales Average Debtors Ratio

2003-04 58,31,018.2 20,35,974 2.86 times

2004-05 90,88,657.33 17,76,582 5.12 times

2005-06 1,22,61,058.8 19,53,076.3 6.28 times

2006-07 1,33,77,943.25 24,36,456.05 5.49 times

2007-08 1,71,49,248.50 28,98,131.00 5.91 times

Table 11: Debtors Turnover Ratio

Interpretation:

The debtors turnover ratio was very less for the year 2003-04 at 2.86

times, it has increased to 5.12 and 6.28 times in the years 2004-05 and 2005-

06. subsequently in the year 2006-07 it has decreased to 5.49 times. Again

the debtors turn over ratio has increased 5.91 times in the year 2007-08. This

shows that the company is making all the efforts to speed up the collection

process.

Debtors Conversion Period

Concept: Debtors are expected to be converted into cash over a short

period of time and therefore are included in current assets. It shows how many

times debtors are turned over during the year. It is the number of days needed

for debtors to get converted into cash.

No. of days in a year

Debtors Conversion Period =

Debtors turnover Ratio



PVT. LTD. Year Debtors Turnover

Ratio

Debtors Conversion

Period

2003-04 2.86 times 128 days

2004-05 5.12 times 71 days

2005-06 6.28 times 58 days

2006-07 5.49 times 66 days

2007-08 5.91 times 62 days

Table 12: Debtors Conversion Period

Interpretation:

The debtors conversion period was 128 days in the year 2003-04 and

over the years it is improving by reducing debtors conversion period days it

has significantly reduced from 128 days in the year 2003-04 to just 62 days in

the current year 2007-08.

The standard period of credit allowed is 30 days, if it is less than the

standard it indicates the credit collection is efficient and if it is more, it indicates

that its credit collection is inefficient. But in the case of DIPL, even though the

debtors conversion period is falling short of the standard period. The company

has shown that it is making all the efforts to speed up the collection period.

Creditors Turnover Ratio

Concept: Creditors turnover ratio establishes relationship between net credit

purchases and average trade creditors and accounts payable. The ratio

indicates the velocity with which the creditors are turned over in relation to

purchases.

The objective of computing this ratio is to determine the efficiency with

which the creditors are managed.

Net Credit Purchases



PVT. LTD. Creditors Turnover Ratio =

Average Creditors

Where, Average Creditors= opening creditors+ closing creditors

________________________________

2

Year Credit

Purchases

Average

Creditors

Ratio

2003-04 50,47,654.21 13,11,015.5 3.85 times

2004-05 64,38,433.5 22,80,564.6 2.82 times

2005-06 1,02,27,956.31 20,49,057.25 4.99 times

2006-07 1,11,01,526.70 23,92,063.23 4.64 times

2007-08 1,37,46,031.96 18,93,335.80 7.26 times

Table 13: Creditors Turnover Ratio

Interpretation:

The creditors turnover ratio was 3.85 times in the year 2003-04 and then

decreased to 2.82 times in the year 2004-05. In the year 2005-06 it increased

to 4.99 times. Subsequently in the current financial year 2007-08 it has

increased to 7.26 times.

Generally lower the ratio better is the liquidity position of the firm and

vice versa. But lower ratio also implies lesser discount facilities availed or

higher prices paid for the goods purchased on credit. The creditors turnover

ratio is important tool of analysis as a firm can reduce its requirement of

current assets by relying on suppliers credit.



PVT. LTD. From the above table it can be known that that the creditors turnover

ratio in the current financial year 2007-08 is increased considerably over the

previous year and hence the company’s liquidity position is not good in current

years.

Average Collection Period

Concept: Average collection period is the period within which the creditors

are repaid. Higher the credit period enjoyed by the company from its creditors,

higher will be the liquidity of the company.

365Days

Average Collection Period =

Creditors Turnover Ratio

Year Creditors Turnover

Ratio

Conversion Period

2003-04 3.85 times 95 Days

2004-05 2.82 times 129 Days

2005-06 4.99 times 73 Days

2006-07 4.64 times 79 Days

2007-08 7.26 times 50 Days

Table 14: Average Collection Period

Interpretation:



PVT. LTD. Generally higher the credit period enjoyed by the company better is their

liquidity status. But the credit period has decreased in the current financial

year 2007-08 to 50 days which shows that there is a prompt repayment to

creditors

Current Asset Ratio

Concept: This ratio measures sales per rupee of investment in current

assets. This ratio measures the efficiency with which current assets are

employed – a high ratio indicates a high degree of efficiency in asset utilization

and a low ratio reflects inefficient use of current assets.

Net Sales

Current Asset Ratio =

Average Current Assets

Where, Average Current Assets = opening + closing

_______________

2

Year Sales Average Current

Assets

Ratio

2003-04 58,31,018.2 12,80,671.42 4.55

2004-05 90,88,657.33 21,15,441.72 4.30



PVT. LTD. 2005-06 1,22,61,058.8 25,77,825.5 4.76

2006-07 1,33,77,943.25 33,74,677.74 3.96

2007-08 1,71,49,248.50 41,37,817.42 4.14

Table 15: Current Asset Ratio

Interpretation:

The current asset ratio for the year 2003-04 was 4.55 and in 2004-05 it

slightly decreased to 4.30 and in the year 2005-06 it has increased to 4.76.

and then decreased to 3.96 in the year 2006-07. In the current year 2007-08

the ratio is slightly increased to 4.14.

The current asset ratio shows the relationship between or

elasticity of current assets to sales and it depicts how efficiently current assets

are employed in an organization to boost the sales.

Findings:

1. View of financial position: The Company was incorporated in the year

2000, its actual commercial work started in the year 2003 April 1st.The

Company had not started any business, so there is no question of profit

from the year 2000 to 2003. But however as a first step towards the

commencement of commercial activity the company has taken over the

business of timing gear blanker on April 2003.

2. In 2003-04 the Company started commercial activity by acquiring the

building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an

annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these

leased assets the company carried out job work for Divgi Warner Pvt.



PVT. LTD. Ltd. After expenses the company made a modest profit of Rs.3,745/-

before depreciation.

3. The debtors component in the composition of current assets is the

highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63%

in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may

be noted that debtors components in current assets is decreasing over

the years.

4. The cash and bank component for the year 2003-04 was 2.19%.it was

1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-

08. The loans and advances component was 10.04% in the year 2003-

04, 18.91% in 2004-05, 19.26% 2005-06, 27.97% in 2006-07, 30.30% in

2007-08. The debtors component in the composition of current assets

decrease the loans and advance component is on an increase.

5. In the years 2003-04 and 2004-05, the company had a negative working

capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a

favorable position to the company. Then in the year 2005-06, 2006-07

and 2007-08 the Net Working Capital has improved drastically to

Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.

Suggestions and Recommendations:

1. The Debtors component is the highest among the five years and it

amounted to nearly 76% of the total current assets. But the percentage

has decreased over the year which is a good sign of improvement. The

second highest element is the loans and advances component which has

increased over the years because of the expansion programmes

undertaken by the company. In the initial years the company had not

maintained a considerable amount of cash and bank balances, but over



PVT. LTD. the years the company is maintaining adequate cash so as to meet its

immediate cash requirements.

2. The working capital of the company should be always positive. It should

not be negative. In the years 2003-04 and 2004-05, the company had a

negative working capital which is not a favorable position to the

company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s

net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40,

and Rs 35,02,104.84 which is a very positive sign of prosperity and it will

help the company to sustain its expansion programmes. It also shows

that the liquidity position of the company has improved. Hence there is

much capital available with the company to pay off the current liabilities.

.

3. In order to ensure liquidity and quick cash collection the company can go

for factoring technique, through which the company can get immediate

cash for its accounts receivables and employ it in business and there by

improve its profitability.

Conclusion:

The Working Capital management contributes much in the overall

management of the organization affairs. Efficiency of organization operations

depends on how it manages its short-term business dealings. Working capital



PVT. LTD. management contributes for the firm’s efficiency as well as the bottom line by

optimally utilizing the available wealth and maintaining the required liquid

Bibliography



PVT. LTD.

Financial Management by M Y KHAN AND P K JAI

Divgi Industries Administrative Manual.

Divgi Industries Directors Report.

Financial Reports of the company

Web Site Visited:

www.divgi-warner.com

www.google.com


http://www.google.com/

http://www.divgi-warner.com/

Documents

A Project Report on Analysis of Working Capital Management